Quote from: mouse on June 29, 2011, 08:32:18 AM

Remember though Bitcoin isn't free.

It is with minimal cost, equivalent to opening a bank account or buying tickets at your country fair or buying corn to barter for cows, use Bitomat once for buying or selling your bitcoins in bulk with international wire tranfer (cost ~$20 more or less once off for any amount transferred?, small in comparison with monthly bank account / annual credit card maintenance costs). Bitomat is a free Polish bitcoin market place, charging no commissions on bitcoin buy/sell transactions. The Polish version is at https://bitomat.pl/ , english translation script for Bitomat at http://userscripts.org/scripts/show/105566

Quote from: mouse on June 29, 2011, 08:32:18 AM

depending on the state of the users wallet, they may have to pay a btc fee to transfer to the merchant.

btc transfer fees are not a requirement to be included in the blockchain at this stage. Miners get rewarded with 50btc / 10 min at present and this will exponentially be reduced over a period - after which very small transfer allocations per transfer will reimburse miners. At the moment an average of 212,495.68 BTC / hour ( http://bitcoinwatch.com/ ) was sent through the bitcoin network. This is 35,415.95 BTC / 10 min on average at the moment. 50 BTC / 10 min are rewarded on average to the aggregate of all miners as secure transfer handling reward with only optional user transfer penalty in place. This constitutes 50 / 35,415.95 = 0.1412 % in transfer penalty that was paid for bitcoin transfers on average.

From here http://blockexplorer.com/block/00000000000008e5a1eb1b3c036f40dcd8fb480771220708b86249a30d9d0410 you can see that not a lot of users are opting to pay the user transfer penalty for example (because it is not required, it is optional, the miners gets rewarded with 50btc/10min on average at present without optional transfer penalties in place). You can see from the above example that for 89 transactions a total of 0.018 btc fees were paid for a total of 2,496.42 btc transferred. This is an additional 0.00072% cost of transfer in addition to the 0.1412% calculated above. So the total transfer cost were 0.1419%, compared to credit cards' ~5%. And please note that this 0.1419% is already accounted for in the bitcoin supply expansion (penalty to all bitcoin users) - the individual tranferrer does not get this penalty subtracted from his btc's. The cost to all bitcoin holders would have been 0.1412% on aggregate for this block example, and 0.00072% for the individual transferrer on average in this block example. The individual transferrer were totally in control by selecting the level of optional transfer penalty.

Quote from: mouse on June 29, 2011, 08:32:18 AM

If the merchant is moving a lot of payments to the exchange each day hey will probably also have to pay a BTC transfer fee.

If he wants to - it's now optional at any amount of btc.

Quote from: mouse on June 29, 2011, 08:32:18 AM

The merchant will have to pay a fee to trade the btc on an exchange.

Not if he trades at bitomat or other free bitcoin market places.

Quote from: mouse on June 29, 2011, 08:32:18 AM

They will have to pay another fee to move their USD off the exchange into their account. If they aren't in the US, this fee will be quite big if it has to go through, say, LR.

There are international bitcoin market places allowing local or more costly international wire transfers to the cost of ~US$20.

Quote from: mouse on June 29, 2011, 08:32:18 AM

The merchant will also need to either accept the risk of exchange fluctuation, or add an additional fee on the service to 'insure' against this.

You however are not exposed to the bitcoin price if you have a credit in anything other than bitcoin where you bought/sold your bitcoin.

Quote from: mouse on June 29, 2011, 08:32:18 AM

Its not a very clean process right at this stage.

Some might say that waiting 180 days for a credit card transaction to clear is not a very clean process. Some might say that waiting 5 days for an international wire transfer is not a very clean process. Most of bitcoin's transfer steps can be programmatically automated, even bitcoin buy/sell risk aversion - the interface where bitcoins themselves are bought/sold with/for credit card / bank transferred money however is not a clean process as are all other digital goods transactions involving credit card / bank transferred money. So once you have bitcoin digital goods purchased - you are freed from the not so clean system of credit card / bank transferred money.